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Why I Did Not Go To Jail

bhorowitz.com

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Re: Why I Did Not Go To Jail

#61

Post by pseingatl »

jamesaguilar wrote: post #8

Just curious. Suppose you did your due diligence, asked your general counsel, and they said, "It's within the law, go for it." Then, acting on their advice, you did the same thing this person did. Would you go to jail for the same amount of time in both cases? E: Name removed to protect the accused, although it's thin protection indeed considering her name is disclosed elsewhere in this thread.

Acting on advice of counsel is indeed a defense. You have to show that you disclosed all relevant facts to your attorney and that you acted within the parameters of that advice. Tbe government may try to get around this by alleging a conspiracy between you and your attorney and charging you both. This is unusual. Not rare, but not the norm either. The government will subpoena your attorney as a witness and threaten him with this. Your attorney will then claim that you failed to disclose X relevant fact. The defense will not be allowed where you failed to disclose all the relevant facts to your attorney. There is a good deal of case law on these issues.

Re: Why I Did Not Go To Jail

#62

Post by watwut »

"Michelle had no intention of breaking any laws and no idea that she’d broken any laws. [...] Once the SEC decided that most technology company stock option procedures were not as desired, the jail sentences were handed out arbitrarily. "

I find this quite disturbing. Especially the second part.

Re: Why I Did Not Go To Jail

#63

Post by cperciva »

rayiner wrote: post #49
jey wrote: post #25

Earlier quoted context omitted.

What's the supposed rationale for the General Counsel reporting to the CFO in the first place? Isn't a General Counsel supposed to be "general" and not only concerned with financial issues?

Much of what a GC will do in a Silicon Valley company is support the CFO in ensuring legal compliance for finance and accounting. In this context, it can make sense for the GC to report to the CFO. In another sort of company where the legal issues might be more diverse, say a place like Wal-Mart that has complex labor and environmental issues in addition to the financial issues, this structure would be less appropria…

Much of what a GC will do in a Silicon Valley company is support the CFO in ensuring legal compliance for finance and accounting. In this context, it can make sense for the GC to report to the CFO.

I'd say the exact opposite. If the GC is spending most of his time making sure that the CFO isn't doing anything illegal, the GC needs to report to anyone other than the CFO.

Re: Why I Did Not Go To Jail

#64

Post by jamesaguilar »

rayiner wrote: post #17
jamesaguilar wrote: post #8

Just curious. Suppose you did your due diligence, asked your general counsel, and they said, "It's within the law, go for it." Then, acting on their advice, you did the same thing this person did. Would you go to jail for the same amount of time in both cases? E: Name removed to protect the accused, although it's thin protection indeed considering her name is disclosed elsewhere in this thread.

Almost always, something like this just results in a civil investigation and monetary penalties if the SEC concludes you did something not-kosher. The criminal indictment for "Michelle" was for tax evasion linked to the back dating: http://ww2.cfo.com/accounting-tax/2008/04/mercury-interactiv... . In general, tax crimes require a high standard of "willful" violation in which the defendant purposefully violates a know…

Fascinating. Based on what everyone is saying, it seems like it is relatively much more difficult to wind up in jail if you are trying to do the right thing.

Re: Why I Did Not Go To Jail

#65

Post by ganeumann »

CamperBob2 wrote: post #47
rayiner wrote: post #12

Accounting compliance is serious business, for the simple reason that when irregularities cause a company to restate its books and tens of millions of dollars just vanish, it can be very difficult to tell the difference between honest mistake and purposeful manipulation. That said, there is a bit more to the story than revealed in the article. From what I can tell, the criminal charges and jail time was for income ta…

True, and I don't understand why he wouldn't have brought that up. When he wrote "The SEC issued Michelle a Wells notice, a letter stating that it planned to recommend enforcement action against her personally. It was not an indictment, but it was a formal investigation, and it would be very distracting. I had to ask her to step down." ... he made it sound like he threw an innocent (as in "until proven guilty") and v…

I don't think there's any way Ben could have known that she claimed on her personal tax return an exercise date for her options that was not the actual exercise date. I doubt the Feds knew that when they issued the Wells notice. Her ex-company probably didn't know. At the time of the Wells notice, she was probably the only person who knew she had lied on her tax return.

And, though it sounds silly after the whole stock option backdating brouhaha, many people did not seem to think that these practices were illegal at the time. Even Steve Jobs was accused of it (though never charged.) United Health Group, KB Home, Brocade, and Monster Worldwide all had executives who were found to have broken the law on backdating. It's possible these executives did not think the practice was illegal (maybe because their accountants had told them it wasn't) and likely they thought that it was a law not enforced (because it had not been enforced until the WSJ brought the practice to light in 2006.)

Re: Why I Did Not Go To Jail

#66

Post by bfe »

jsonne wrote: post #39
bfe wrote: post #30

Earlier quoted context omitted.

If someone doesn't have time to make sure the company has a legally compliant options policy, they don't have time to be the CEO.

I pretty adamantly disagree. A CEO is a specialized role just like any other. I wouldn't expect a developer to know the ins and outs of financial compliance, and the same holds for a CEO and specific compliance rules.

Elon Musk said accounting rules are the easy part of being a tech CEO. [1] Anyone smart enough to be a technical CEO is smart enough to get on top of the non-technological core functions of a company; and having the CEO on top of them will be better for the company.

1. From memory; it was on video and I can't find a text reference now; in reference to SpaceX already using strict enough accounting controls to be Sarbanes-Oxley compliant even though it's a private company, IIRC.

Re: Why I Did Not Go To Jail

#67

Post by ganeumann »

smsm42 wrote: post #51

What I take from this story is that the financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional. The author's council could have given him "yes" answer as easily as "no" answer - many other lawyers obviously did since 200 companies got "yes" answers from their councils. And he'd never known anything was wrong. Basically, one can becom…

There's a big difference between going to your general counsel and asking "Is this legal?" and going to your accountants and saying "Find me a way to make this legal enough." I think the options-backdating was an example of the latter.

Re: Why I Did Not Go To Jail

#68

Post by woodchuck64 »

staunch wrote: post #27

or "How I Hired a White Collar Criminal And Avoided Jail" "On May 31, 2007, the Commission charged Abrams and three other former senior Mercury officers with perpetrating a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other Mercury employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The…

http://www.law360.com/articles/229277/ex-mercury-cfo-gets-4-...

"Noting that criminal tax evasion cases are relatively rare, prosecutors called Abrams' crime "a disturbingly familiar case of a wealthy defendant manipulating a system to gain more money."

Re: Why I Did Not Go To Jail

#69

Post by rayiner »

smsm42 wrote: post #51

What I take from this story is that the financial law is so complex and unapproachable one can not reliably navigate it without landing in jail, even being a seasoned professional. The author's council could have given him "yes" answer as easily as "no" answer - many other lawyers obviously did since 200 companies got "yes" answers from their councils. And he'd never known anything was wrong. Basically, one can becom…

The premise that the author would've landed in jail for implementing the backdating scheme is flawed. His CFO went to jail, but because in the process of choosing favorable dates for backdating her stock options, she ended up deliberately misstating her income for certain years on her tax returns.

By and large, people do not go to jail for simply picking the wrong plausible interpretation of tax or accounting law. There's even a Supreme Court case about this: http://en.wikipedia.org/wiki/Cheek_v._United_States ("The Court held that an actual good-faith belief that one is not violating the tax law, based on a misunderstanding caused by the complexity of the tax law, negates willfulness, even if that belief is irrational or unreasonable.")

With something like backdating, you're essentially going around saying that something happened on one date (the options grant), when it actually happened on some other date. While that may be kosher for the purposes of accounting, and PWC or E&Y will happily sign off on that, it doesn't mean that those assertions are thus okay in any other context. And that's not a subtle legal gotcha, it should be plainly obvious.

Re: Why I Did Not Go To Jail

#70

Post by invalidOrTaken »

maratd wrote: post #15

Unrelated to the story, there is a dead comment on this thread. It looks like it was written by a racist bot? What? Why is somebody paying money to do this?

It's not a bot, it's a schizophrenic user. He's built quite the OS, though...https://www.youtube.com/watch?v=EViG0Q4lTeA
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